5 - General systemic coordination

Summary

What constitutes an “appropriate” microfoundation for macroeconomics has been answered, implicitly, by most economists brought up in the neo-Walrasian tradition. If any single point of view can be said to have prevailed, it is that the micro–macro bifurcation is rectifiable since a well-specified general equilibrium model describes the behavior of all economic agents in an economy and a fortiori describes the behavior of those agents when they are considered generically, as representative sectoral agents (consumers, capital goods producers, etc.).

Despite this consensus most economists, when distinguishing between microeconomics and macroeconomics, will talk about the level of aggregation at which the various models work. As H. A. John Green [1977] has written: “It is clear that macroeconomics, by its very nature, involves aggregation” [in Harcourt, 1977, p. 179]. In microeconomics the emphasis is on individual behavior, actions of households and firms, and choice calculus. In macroeconomics, those same units are treated as aggregates: all households generate a demand for consumer goods, for instance. Consequently the translation from micro to macro necessitates aggregation rules which enable the choice-theoretic household demands for consumer goods to be combined into an aggregate consumption function. Just as at the individual level prices, tastes, and income are needed to generate demand curves, so too at the macro level some “appropriate” real concept explains real consumption demand. Consistency requires that individuals are sufficiently similar so that their behaviors may be summed.